Recently, there has been a lot of buzz about cryptocurrency and bitcoin or Ethereum. If you happen to follow Tesla’s founder, Elon Musk, you will have heard words like Dogecoin being used often too. It’s possible you’ve heard the word blockchain being thrown around, but, if you, like many others, find this world of bizarre words to be distant and obscure, you may find yourself asking what exactly all this cryptocurrency and blockchain stuff actually is. If so, continue reading as this article is specifically for you—we’re going to talk about the basics, in simple terms to help you understand where the world of finance is going and how blockchain is the underlying technology that is powering the shift.
Blockchain:
Let's start with what blockchain is—simply put it’s a network of servers that store information. A server is a computer—both run software programs and store information. Now imagine, blockchain is a network of lots of servers or computers all connected to one another via the internet with the sole purpose of storing and recording information. This group of servers, that can be spread all over the world, store and record information in their memory as a block of information. This is replicated across hundreds, sometimes even thousands of different servers around the world, and this replicated information is in a chain of saved identical information.
The advantage of storing information like this is security—imagine you were to store a piece of information on your computer and for whatever reason, that computer was hacked, damaged, lost, or stolen. The information stored on that one computer could be lost forever as that was the one single source of the information. With blockchain, the network of computers stores the saved information on a block across multiple servers, meaning that no matter what happens to one or even multiple servers that are recording this information, there is always a global network backup of additional servers storing and recording the same information.
The benefit of this is that this network is extremely secure, you can be confident that the information stored on this network is going to be accurate and since it's extremely difficult to corrupt, you can trust the information being given to you from the blockchain. This type of infrastructure makes the perfect, secure underpinnings for tracking, recording, and displaying sensitive or valuable information—such as financial transactions, purchases, and currency transfers, which is the perfect segue to cryptocurrency.
Cryptocurrency:
Hopefully you now have a basic understanding of what a blockchain is, and why it makes sense to use this technology as a way of recording important records in an extremely secure and distributed way. It’s because of these properties that it is the technology used to record cryptocurrency transactions.
So, what exactly is cryptocurrency? It’s virtual money or to put it a little more specifically, it works as a medium of exchange. When we trade things as consumers, we typically need a medium of exchange as it may not always be the case that two people have assets that they wish to trade with each other. For example, let's say I want to buy a new T-shirt and the only thing I have that I could exchange in value for it was a pair of shoes—what if the person with the T-shirt does not want my shoes? How else can I offer something of value as a medium of exchange? This is why currency in itself exists—it’s something that can be exchanged for anything based on a perceived value.
For almost as long as trade has existed economically, we have had a form of physical currency. Historically, it may have been gold or silver coins, while today, it's things like the dollar, pound sterling, or euro. In the last decade, we have seen the rise of cryptocurrencies, virtual currencies that perform the same tasks as a traditional physical one but have a number of properties that make them different and superior to the past ones. Let’s break it down.
Cryptocurrency is released in a limited quantity, so, for example, there is a limited amount of bitcoin, Ethereum, and XRP available. And there will never be more than what the creators of those currencies made. When you own one of those currencies, it is recorded on a digital ledger, that is, in almost all cases, recorded on a distributed network, (as we have now learned) called a blockchain. The reason it’s called cryptocurrency is because this virtual currency is using very strong cryptography in order to secure transactions and to prevent the unlawful replication of the currency. There are potentially dozens of benefits that cryptocurrency offers, but below are the top four that are arguably the greatest.
Security:
The way that cryptocurrency is designed means that it is incredibly secure, and you can be confident in your transactions and the record of the data. When compared to the vulnerability of the conventional merchant methods, such as credit cards and traditional currency, cryptocurrency is exponentially more secure than any of these other methods of payment. When it comes to currency transfers, this is also the case—older methods, such as wire transfers, could only ever dream of being as secure as a cryptocurrency exchange.
Ease of Transactions:
It may seem highly complex, but it really isn’t once you download and get your own wallet. Think of it like your banking app on your phone—it’s the same principle—you download your wallet, and you can make transaction transfers easily to people all around the world in order to pay for goods, services, and to trade cryptocurrencies. To further add to the ease of use, transactions are done pretty much instantly, all over the world, which drastically speeds up the financial process—not to mention that these are done at a fraction of the cost of traditional banks.
24/7 Market:
There are no time restrictions on this market, these transactions are happening across the globe in a 24/7 market. In a digital world, where the global economy is moving so much faster, the currencies that underlie these economies need to be able to keep up with the pace of technology. There simply is only one solution now that can, and that is cryptocurrency.
Investment Opportunity:
Now, before we go any further, this article is not suggesting or recommending that you look at cryptocurrency as an investment, however, we will furnish you with some facts about this fast-growing industry and allow you to draw your own conclusions.
In 2013, the cryptocurrency market was worth about $1.6 billion. Currently, the market is worth over $2 trillion. This level of growth only looks to continue—today, cryptocurrency only accounts for a tiny fraction of the transactions that actually go on in the financial world, which means there is further room for massive growth.
Because cryptocurrencies are created with a limited number of coins mined, it means as the demand for the use of that coin increases, let’s use bitcoin as an example, the value of the currency also increases. This is why people are buying quantities of various currencies and sitting on them in wallets for years as a way of making an investment return.
Summary:
Don’t be afraid to ask questions, read, and learn more about blockchain and cryptocurrency. One thing this article can assure you is that this technology and market is here to stay and will only continue to grow. So rather than resisting something you may not entirely understand, begin to learn more about it and embrace the future as well as the advantages technology will bring to all of us.
If you think you are too late to the party, you’re wrong—all the cryptocurrencies in the world combined are still worth only two-thirds of Apple’s entire market cap. If you consider that these currencies will eventually be able to service all transactions around the world, then you’ll realize that there is a lot of room for growth. Even the US Fortune 500 total market cap value sits at $22.6 trillion, which is over ten times that of the cryptocurrency market today. Imagine if you added up the entire value of all companies in North America? We are truly at the beginning of the curve with this market—now is an excellent time to get familiar with it and take advantage of what its future holds.
